Ukraine, Russia Bury Hatchet to Pipe Gas to EU

Russia is optimistic about setting out a temporary agreement to help resolve a natural-gas pricing dispute with Ukraine at talks on 21 October, according to Energy Minister Alexander Novak.

“Expectations are positive,” Novak told reporters in Brussels, according to the Russian energy minister’s press service. Russia expects to “formalize” issues agreed on in Italy last week, he said before a meeting with Ukrainian Energy Minister Yuri Prodan, brokered by European Union Energy Commissioner Guenther Oettinger.

The 28-nation EU, which depends on Russian gas piped across Ukraine for about 15 percent of its demand, proposed an interim deal last month to resume deliveries from Gazprom to Ukraine to pay up, Russia cuts price after they were halted in June.

Under the EU proposal, Ukraine would pay $3.1 billion by the end of the year for previously delivered supplies and Russia in return would cut its price by $100 per thousand cubic meters to $385 through March.

State-run Gazprom, Ukraine’s main gas supplier, halted deliveries over a pricing and debt dispute as a separatist conflict raged in the east of the country. While transit shipments to Europe remain. EU has been seeking to broker an interim deal between presidentsVladimir Putin and Petro Poroshenko to avoid a repeat of supply cuts the bloc experienced during disagreements in 2006 and 2009.

Freezing Weather

Both Russia and Ukraine have been trading accusations on threats to EU-bound gas transit during the coming cold season since July. Ukrainian officials have said the country has $3.1 billion set aside that can be used to pay for gas. Russia demands an additional prepayment for future deliveries to resume supplies.

Ukraine together with the EU should find about $1.6 billion by the end of this year for prepayment, according to Russia’s Energy Ministry. Europe “can and should lend a hand and help Ukraine” to pay for the Russian gas upfront, Putin said after talks in Italy on Oct. 17.

The European Commission, the EU’s executive arm, could extend a bridge loan, a planned aid of the International Monetary Fund ahead of schedule or a guarantee of “first class” European lenders, Putin said. German Chancellor Angela Merkel confirmed that a bridge loan is needed to end the gas dispute between the former Soviet allies, adding that she wanted a deal to be clinched.

European Clients

Ukraine will have gas for the winter after agreeing to pay $385 per thousand cubic meters of fuel from Russia through March, President Poroshenko said in televised remarks on Oct. 18. The price is 10 percent higher than the average level that Gazprom expects from its European clients this year. The government in Kiev may use loans from the IMF or other financial organizations to pay for the fuel, Poroshenko said.

Ukraine has already missed the opportunity to pump the volumes of gas into underground storage that is needed to get through the winter normally, Gazprom Chief Executive Officer Alexey Miller said Oct. 7.